FORWARD LOOKING STATEMENT NOTICE
Statements made in this Form 10-Q that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
Financial information contained in this quarterly report and in our unaudited
interim financial statements is stated in United States dollars and are prepared
in accordance with United States generally accepted accounting principles.
GENERAL
We were incorporated in the State of Nevada on August 17, 2016 under the name
Zartex, Inc. On December 6, 2018, we changed our name to Cannis, Inc. From
inception until November 14, 2018, the Company's principal business consisted of
software development.
Effective November 14, 2018, a change of control occurred with respect to
Zartex, Inc. ("Company"). Pursuant to a Securities Purchase Agreement entered
into by and among the Company, Mr. Aleksandr Zausaev ("Seller") and Mr. Eu Boon
Ching ("Buyer"), Buyer acquired from Seller 5,000,000 shares of common stock of
Company. In addition, pursuant to a separate Stock Purchase Agreement by and
among Mr. Ching, as buyer, and certain other shareholders of the Company, Mr.
Ching acquired an additional 1,335,000 shares of common stock of the Company.
The total number of shares of common stock acquired by Mr. Ching is 6,335,000,
and all such shares now held by Mr. Ching are "restricted" and/or "control"
securities.
On the closing of the above transaction, Mr. Zausaev, the then sole officer and
director of the Company, resigned in all officer and director capacities from
the Company and Mr. Ching was appointed the sole officer of the Company (Chief
Executive Officer, Chief Financial Officer, Secretary and Treasurer) and a sole
Director of the Company. At closing, the Company assigned all of its assets to
Mr. Zausaev in exchange for certain considerations including his cancellation
and waiver of all outstanding liabilities of the Company in favor of the former
sole officer and director.
Effective immediately at closing, the Company permanently ceased its previous
operating activities of software development. Consequently, the Company is now a
shell company seeking to merge with another entity with experienced management
and opportunities for growth in return for shares of our common stock to create
value for our shareholders.
On December 6, 2018, the Company amended its Articles of Incorporation with the
Nevada Secretary of State to effect the name change of the Company to Cannis,
Inc.
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Acquisition of Cannisapp
On August 5, 2019 (the "Closing Date"), we closed a share exchange under a Share
Exchange Agreement (the "Stock Exchange Agreement"), with Cannisapp. Sdn. Bhd, a
Malaysian company ("Cannisapp") and Mr. Ching, its sole stockholder, who is our
majority shareholder and officer and director. Mr. Ching held 100% of the issued
and outstanding stock of Cannisapp. Pursuant to the Stock Exchange Agreement and
upon the closing of the Share Exchange, in exchange for all of the issued and
outstanding capital stock of Cannisapp, we issued to Mr. Ching an aggregate
amount of 1,482,492,800 shares of our common stock and 8,500,000 shares of Class
A Preferred Stock, $0.001 par value, which has 100 for 1 voting rights per
share. As a result of the Share Exchange, Mr. Ching remains the controlling
shareholder of the Company, owning a total of 99.99% of our outstanding common
stock and 100% of our outstanding Class A Preferred Stock. The Share Exchange
was accounted for under the business combination under common control of
accounting. As a result of the Share Exchange, we ceased to be a "shell
company."
We conduct our operations through our consolidated subsidiary, Cannisapp. The
subsidiary was incorporated under the corporation laws in Malaysia on April 2,
2018 under the name Antara Rimbun Sdn Bhd. It affected a name changed to Nimpmos
Sdn Bhd on July 5, 2018, and then to Cannisapp Sdn. Bhd. on September 12, 2018.
On May 22, 2020, Cannisapp changed its name to Richmore International Sdn Bhd.
Cannisapp has two distinct, business segments. One is developing proprietary
mobile applications and the other is acting as an offline sales distributor for
nutritional supplements manufactured by third parties. We began selling
nutritional supplements in September 2018. In December 2019, we suspended
selling these nutritional supplements, however we continued to sell our existing
inventory which was exhausted in January 20, 2020. We commenced the development
of our mobile applications operating on Android and iOS operating systems in
June 2018.
Our offices are located at Level 11-2, Tower 4, Puchong Financial Corporate
Centre (PFCC), Jalan Puteri 1/2, Bandar Puteri,47100 Purchhong, Selangor,
Malaysia and our website is www.cannis.app.
On April 24, 2019, the Company amended its Articles of Incorporation by filing a
Certificate of Amendment with the Nevada Secretary of State which (i) increased
the authorized shares of its common stock, $0.001 par value, from 75,000,000 to
1,500,000,000 shares, and (ii) created a class of preferred stock, $0.001 par
value, called the Class A Preferred Stock in the amount of 10,000,000 authorized
shares, with each share of Class A Preferred Stock having 100 votes to be cast
with respect to any and all matters presented to shareholders for a vote whether
at a meeting of shareholders or by written consent. Apart from the voting rights
stated in the preceding sentence, the Class A Preferred Stock shall have no
other rights, privileges or preferences.
Translation of amounts from the local currency of Cannisapp (Malaysian Ringett
"MYR") into US$1 has been made at the following exchange rates for the
respective years:
As of and As of and
for for
nine months nine months
ended ended
May 31, May 31,
2020 2019
Period-end MYR: US$1 exchange rate 4.3477 4.1970
Period average MYR: US$1 exchange rate 4.2100 4.1354
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RESULTS OF OPERATIONS
NINE MONTHS PERIOD ENDED MAY 31, 2020 COMPARED TO THE NINE MONTHS PERIOD ENDED
MAY 31, 2019
The following table sets forth key components of the Company's results of
operations for the nine months ended May 31, 2020 compared to the nine months
ended May 31, 2019. The discussion following the table addresses these results.
Nine months Nine months
ended ended
May 31, May 31,
2020 2019 Fluctuation %
Revenue $ 369,600 $ 2,681,255 (2,311,655 ) (86 )%
Cost of revenue 263,822 1,854,238 (1,590,416 ) (86 )%
Gross margin 105,778 827,017 (721,239 ) (87 )%
Operating expenses
Selling, General and
administrative 1,120,189 3,766,437 (2,646,248 ) (70 )%
Total operating expenses 1,120,189 3,766,437
Loss from operations (1,014,411 ) (2,939,420 ) 1,925,009 (65 )%
Interest income 12 358 (346 ) (97 )%
Extinguishment of Debt - 35,236 (35,236 ) (100 )%
Other income (loss) - 1,940 (1,940 ) (100 )%
Net loss $ (1,014,399 ) $ (2,901,886 ) 1,887,487 (65 )%
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Revenues. During the nine months ended May 31, 2020, we had revenue of $369,600,
which were derived entirely from offline sales of nutritional supplements. For
the same period last year, we had revenues of $2,681,255 also from sales of
nutritional supplements. We act as a distributor for two different manufacturers
and we began selling these supplements in September 2018. In early December
2019, we determined to suspend the offline sales of nutritional supplements,
however we continued to sell our existing inventory through January 2020. As of
the end of January 2020, we sold all of our remaining inventory. The significant
decrease in revenues for the current nine month period compared to the prior
nine month period is due to the termination of the nutritional supplement sales.
On March 18, 2020, in response to the Covid 19 pandemic, the Malaysian
government had declared Movement Control Order ("Order") for the entire nation
which restricted movement except for those people who were working for essential
services. The gradual relaxation of the restrictions of the Order is expected to
commence during July 2020. Due to the impact of Covid 19 and the Order, we can
not predict when we will be able to re-commence operations or our ability to
continue our operations.
We began developing our proprietary mobile applications in June 2018. In early
calendar year 2020, we suspended developing our mobile applications due to lack
of funds coupled with the impact of Covid 19, however, we are continuing to test
our mobile applications. At the present time, the Company is assessing its
ongoing operations and its financial requirements. As of the date of this
report, the Company has not made a determination as to its ongoing operations.
We have not generated revenues from these applications for the nine months ended
May 31, 2020 and 2019, respectively.
Cost of Revenue. For the nine months ended May 31, 2020, we had cost of revenue
of $263,822 compared with $1,854,238 in cost of revenue for the same period last
year. The significant decrease for the current period correlates to the decrease
in sales for the same period. Cost of revenue represents our costs for the
nutritional supplements sold.
Operating expenses. For the nine months ended May 31, 2020, we had selling,
general and administrative expenses of $1,120,189 compared with selling, general
and administrative expenses of $3,766,437 for the three quarters ended May 31,
2019, representing an 70% decrease from the prior period. Selling, general and
administrative expenses mainly consist of salaries and related employee
benefits, office expenses, professional service fees, depreciation expenses,
rent, and related costs. The significant decrease was due to the fact that the
operational costs reduced significantly from end of first quarter of fiscal
2020. For example, we reduced our head count from 46 during the prior period to
2 for the current period.
Loss from Operations. For the nine months ended May 31, 2020, we had loss from
operations of $1,014,411 compared with loss from operations of $2,939,420 for
the nine months ended May 31, 2019 for the reasons discussed above.
Net Loss. For the nine months ended May 31, 2020, we had gross profit in the
amount of $105,778 and total operating expense in the amount of $1,120,189,
which resulted in a net loss of $1,014,399. For the nine monthsended May 31,
2019, we had gross profit in the amount of $827,017 and total operating expense
in the amount of $3,766,437, which resulted in a net loss of $2,901,886.
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THREE MONTHS PERIOD ENDED MAY 31, 2020 COMPARED TO THE THREE MONTHS PERIOD ENDED
MAY 31, 2019
The following table sets forth key components of the Company's results of
operations for the three months ended May 31, 2020 compared to the three months
ended May 31, 2019. The discussion following the table addresses these results.
Three months Three months
ended ended
May 31, May 31,
2020 2019 Fluctuation %
Revenue $ - $ 1,534,572 (1,534,572 ) (100 )%
Cost of revenue - 1,104,939 (1,104,939 ) (100 )%
Gross margin - 429,633 (429,633 ) (100 )%
Operating expenses
Selling, General and
administrative 87,933 1,649,954 (1,562,021 ) (95 )%
Total operating expenses 87,933 1,649,954
Loss from operations (87,933 ) (1,220,321 ) 1,132,388 (93 )%
Interest income 0 55 (55 ) (100 )%
Other income (loss) 0 925 (925 ) (100 )%
Net loss $ (87,933 ) $ (1,219,341 ) 1,131,408 (93 )%
Revenues. During the three months ended May 31, 2020, we did not generate any
revenue. For the same period last year, we had revenues of $1,534,572, which
were derived entirely from offline sales of nutritional supplements. We act as a
distributor for two different manufacturers and we began selling these
supplements in September 2018. In early December 2019, we determined to suspend
the offline sales of nutritional supplements, however we continued to sell our
existing inventory through January 2020. As of the end of January 2020, we sold
all of our remaining inventory. The significant decrease in revenues for the
current three month period compared to the prior three month period is due to
the termination of the nutritional supplement sales.
On March 18, 2020, in response to the Covid 19 pandemic, the Malaysian
government had declared Movement Control Order ("Order") for the entire nation
which restricted movement except for those people who were working for essential
services. The gradual relaxation of the restrictions of the Order is expected to
commence during July 2020. Due to the impact of Covid 19 and the Order, we can
not predict when we will be able to re-commence operations or our ability to
continue our operations.
We began developing our proprietary mobile applications in June 2018. In early
calendar year 2020, we suspended developing our mobile applications due to lack
of funds coupled with the impact of Covid 19, however, we are continuing to test
our mobile applications. At the present time, the Company is assessing its
ongoing operations and its financial requirements. As of the date of this
report, the Company has not made a determination as to its ongoing operations.
We have not generated revenues from these applications for the three months
ended May 31, 2020 and 2019, respectively.
Cost of Revenue. For the three months ended May 31, 2020, we had cost of revenue
of $0 compared with $1,104,939 in cost of revenue for the same period last year.
The significant decrease in cost of revenue for the current period correlates to
the decrease in sales for the same period. Cost of revenue represents our costs
for the nutritional supplements sold. DHL to re-do once info received
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Operating expenses. For the quarter ended May 31, 2020, we had selling, general
and administrative expenses of $87,933 compared with selling, general and
administrative expenses of $1,649,954 for the quarter ended May 31, 2019,
representing an 95% decrease from the prior period. Selling, general and
administrative expenses mainly consist of salaries and related employee
benefits, office expenses, professional service fees, depreciation expenses,
rent, and related costs. The significant decrease was due to the fact that the
operational costs reduced significantly from end of first quarter of fiscal
2020. In this regard, we reduced our head count from 46 during the prior period
to 2 for the current period.
Loss from Operations. For the quarter ended May 31, 2020, we had loss from
operations of $87,933 compared with loss from operations of $1,220,321 for the
quarter ended May 31, 2019 for the reasons discussed above.
Net Loss. For the quarter ended May 31, 2020, we had gross loss in the amount of
$0 and total operating expense in the amount of $87,933, which resulted in a net
loss of $87,933. For the quarter ended May 31, 2019, we had gross profit in the
amount of $429,633 and total operating expense in the amount of $1,649,954,
which resulted in a net loss of $1,219,341.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital Deficit. As of May 31, 2020, the Company had working capital
deficit of $5,621,326, compared to a working capital deficit of $5,354,942 as of
August 31, 2019. The increase in working capital deficit is a result of a slight
increase in payables, including related party payables, as of May 31, 2020.
Cash Flows.
The following is a summary of the Company's cash flows from operating, investing
and financing activities for the three quarters ended May 31, 2020 and 2019,
respectively:
Nine months Nine months
ended ended
May 31, May 31,
2020 2019
Net cash used in operating activities $ (519,445 $ (1,490,475 )
Net cash used in investing activities
(16,120 ) (204,270 )
Net cash provided by financing activities 421,066 2,052,822
Net change in cash and cash equivalents $ (160 $ (22,022 )
Operating Activities. Net cash used in operating of $519,444 for the nine
months ended May 31, 2020 consists mainly of a net loss of $1,014,399, a
decrease of $165,938 in advance from customers, a decrease of $38,488 in account
payable, which were offset by an adjustment of fixed asset written-off of
$547,168, a decreased of $47,988 in advance to suppliers, a decrease of $46,294
in other receivable, and an increase of $ 52,023 in accrued expenses and other
payables.
Net cash used in operating of $1,490,475 for the nine months ended May 31, 2019
consists mainly of a net loss of $2,901,886, an increase of $148,266 in advance
to suppliers, extinguishment of debt of $35,236, and an increase of $28,375 in
other receivable, which were offset by an adjustment of fixed asset written-off
of $11,672, depreciation of $19,720, an increase of $1,422,260 in account
payable, an increase of $156,676 in accrued expenses and other payables, and a
decrease of $12,551 in inventory.
The decrease in net cash outflow was primarily the result of the substantial
decrease in net loss,the increase in write-off of fixed assets, partly offset by
the decreased balance of account payable.
Investing Activities. Net cash used in investing activities was $16,120 for the
nine months ended May 31, 2020, compared to net cash used in investing
activities of $204,270 for the nine months ended May 31, 2019. Net cash used in
investing activities solely reflect purchase of property.
Financing Activities. Net cash provided by financing activities was $421,066 for
the nine months ended May 31, 2020 compared to $2,052,822 for the nine months
ended May 31, 2019. Most of the cash inflow was advances from our related party
for the nine months ended May 31, 2020. We continue to rely on advances from our
majority shareholder to fund our operations.
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Going Concern
The financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.
Our monthly expenses are estimated to be $95,500 per month. The estimated
monthly allocations are as follows:
• office rental at $8,000,
• employee accommodations at $2,500,
• salaries at $40,000, and
• other overheads, including legal and professional fees, travel expenses,
maintenance and marketing cost at $45,000.
The Company has not yet established an ongoing source of revenues and cash flows
sufficient to cover the operating costs and allow it to continue as a going
concern. The Company has an accumulated deficit of $5,968,577 as of May 31,
2020. These factors among others raise substantial doubt about the ability to
continue as a going concern for a reasonable period of time.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. Management's plan is to obtain such
resources by obtaining capital from management and significant shareholders
sufficient to meet its minimal operating expenses and seeking third party equity
and/or debt financing. However, management cannot provide any assurances that
the Company will be successful in accomplishing any of its plans. These
financial statements do not include any adjustments related to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
Existing working capital, further advances by related party and debt
instruments, and anticipated cash flow are expected to be adequate to fund our
operations over the next twelve months. We have no lines of credit or other bank
financing arrangements. Generally, we have financed operations to date through
the proceeds of the private placement of equity and debt instruments. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
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ZARTEX INC 
